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Guaranteed maximum price meaning
Published by a LexisNexis Construction expert
What does Guaranteed maximum price mean?
Guaranteed maximum price (GMP) describes a pricing mechanism in construction contracts under which the contractor agrees a cap on the contract sum. The works are delivered on an actual cost plus fee basis, but the contractor’s entitlement is capped at the GMP; any cost overrun above that ceiling is the contractor’s risk. Savings below the cap are commonly shared between employer and contractor under a pain/gain share to incentivise cost control.
GMP is not defined in legislation and is a descriptive term used across England and Wales, Scotland, Northern Ireland and Ireland; its effect depends on the contract drafting. Typical features include: a clearly defined scope and exclusions; identification of recoverable costs; open-book reporting and audit rights; contingencies/allowances; and change control stating when the GMP adjusts (for example, for instructed variations, employer risk events, changes in law or provisional sums).
GMPs are often implemented by bespoke terms or amendments to standard forms (for example, JCT or NEC), rather than as an off‑the‑shelf option. A GMP reallocates cost risk to the contractor but is not an absolute fixed price: uncertain design, inadequate information or employer changes will usually entitle a GMP adjustment. Usage is broadly consistent across the UK and Ireland.
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View the related Practice Notes about Guaranteed maximum price
PRACTICE NOTES
UK Construction Law Glossary: F—Facilities Management, FIDIC, Final Account, Fitness for Purpose, Force Majeure, Frameworks and Funding
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Facilities management Facilities management contracting is, at its core, a commercial services contract arrangement, covering ‘Hard FM’ (relating to the upkeep and fabric of a building, for example mechanical and electrical systems), ‘Soft FM’ (relating to in-building support functions such as cleaning, security and helpdesk services) or ‘Total FM’ (which can combine a number of hard and soft facilities management services), as required within buildings. See subtopic: Facilities management for construction lawyers. Fédération Internationale des Ingénieurs-Conseils (FIDIC) The International Federation of Consulting Engineers. FIDIC issues a suite of standard-form contracts for deployment on international construction projects. In common usage, ‘FIDIC’ typically refers to that family of contracts rather than the institution itself. See subtopics: FIDIC contracts 2017 onwards and FIDIC contracts pre-2017 editions in practice by practitioners. Feed-in tariff The Feed-in tariff (FIT) scheme—also sometimes known as the...
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PRACTICE NOTES
Construction Law Glossary—‘G’: Contracts, Claims, Guarantees, Pricing, VAT and Building Safety
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z GC Works A suite of construction contracts produced by the government (by what was then the Department of the Environment, Transport and the Regions) for building and engineering projects in the public sector. They are no longer updated. General requirements An alternative name for project overhead costs, ie essential expenses incurred during the project that are not directly connected to construction activity (for example, the hire and rental of contractor's premises and general support and supervisory staff costs)...
21 May
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